One way or another you might have encountered a client or two who have stubbornly refused to pay on time or who simply make payments at a later date. Instances like these can seriously hurt your cash flow.
Do you have an effective credit management process that will help regulate customer credit risk and reduce bad debt? We have enlisted some steps that will help you get on the right track:
Assess Credit Worthiness
Before even agreeing to anything with a potential or current client, make sure to do a background check first. Finding out whether a business has a good track record of making payments is of paramount importance as this could very well be a deal breaker.
Set a Credit Limit
It is always wise to set a credit limit, regardless of whether a client has been a partner for some time or if they have recently started doing business with you. For new clients, make it a point to start small. When you can see that they have been diligently making payments, consider increasing their credit limit.
Consider Drawing Terms and Conditions
With the help of a legal team, you may create your own set of “Terms and Conditions” and present this to your clients. Doing so protects both parties — you will fulfil your obligation as supplier or service provider, while the client knows that you have drawn up certain payment terms for when these goods or services are delivered.
For example, you may state that until the goods have been paid, the stocks are still in your ownership. You may also indicate that an interest rate will be implemented for any late payments (though it is your prerogative to actually enforce this or not).
Setting up your own Terms and Conditions puts limits within the contract. Make sure that both you and the client have signed, and if you have a business website you may also publish your T&C there.
A lot of business owners tend to “forget” to send invoices to clients (especially long time ones) and this is when debt grows and becomes an issue.
First, find out to whom you should be sending an invoice to. Should it be directly to the business owner or an accounting department perhaps? This will lessen any complications in the future and prevent anyone from playing the Blame Game.
Secondly, send invoices promptly to the right party. You may indicate in your Terms and Conditions when the payment should be made (every 20th of the month, for example).
If you notice that a payment is overdue, don’t wait. Make that call and inform your client of the late payment. The earlier you resolve any late payments, the better it will be for all involved in the long run.
You might encounter a client that won’t settle until a reminder has been made. When you want to maintain and continue the business relationship, it is always best to be diplomatic in your approach.
Reconsider your Terms and Formulate a Strategy
For customers that pay regularly or continually pay late, consider changing up your terms according to the current situation. For instance, you may increase your charge or put credit on hold until the account has been settled.
Take a step back and look at the circumstance at hand. Sometimes you might need to ease up and make payment schemes easier for your client. Take a look into your collection process and see whether THAT is the underlying issue; you might have a system that is tedious, thus preventing your client from paying on time.
Be open to the idea that cheques might not be the best way to settle an account. Be open to the idea that other payment methods will be more ideal, such as bank transfers or PayPal.
Since much of today’s transactions are digital, it would be surprising to know that some businesses still employ old-fashioned systems or processes like the use of pen and paper. Suggest the use of digital money transfers and lay out the benefits of doing so, such as:
- Real-time crediting and transfer
- An up-to-date record of all transactions
- Lessening the use of paper (becoming more eco-friendly)
- Automatic calculations thereby minimising the incidence of human errors
- Almost limitless storage of records that are stored in a cloud or hard disk
It cannot be stressed enough how easy and convenient it would be for everyone when digital payments are made available.
As a business owner, it is almost certain that you have encountered all sorts of clients. Each one is different or unique in their way of handling transactions and there might be one or two that stand out when it comes to outstanding accounts. For cases like this, seek the help of a debt collection agency. Detaching yourself (and your emotions) from the situation is crucial especially when you have intentions of continuing the business deal in the coming days. When
you enlist the help of a debt collection agency, you are handing over the responsibility of debt collection to them while business continues as usual.
JMA Credit Control
With over 50 years of experience under our belt, JMA Credit Control offers its clients the freedom and control to continue doing business while we manage debt collection on your behalf.
We don’t discriminate — our clientele ranges from small business owners to large corporations — each one bogged down with the same issue: debt collection. Let us take over and help you secure more sustainable cash flow for you, your business, and beyond.